We have discussed these toxic loans over the last two years as the real wave that will wash over the country ultimately resulting in massive foreclosures in CA, NV, FL, WA, OR, AZ etc. These products were pushed like nothing else by WAMU, INDYMAC and Countrywide. Notice anything about that list of banks? All gone, taken over by other institutions. These loans blew up the banks. No one would merge with them without MASSIVE government support. 
These loans are very toxic. They were used as an affordability product or a speculation tool. Various programs allowed for 10% down payments or equity in a property. Landlords would buy homes and rent them out only covering the negative amortization option ARM payment or maybe the interest only. These loans are all resetting over the next few years. They will reset to a fully amortized payment which are hundreds or thousands of dollars higher per month. I believe this is the real cancer sitting on the bank balance sheets. The impact on the middle to high end of the housing market will be dramatic that is why jumbo loans are only going to 75-80% loan to value in these markets. the industry risk managers believe these areas of the country have much more to fall in this segment of the housing market. Time will tell as they say.
